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Homework answers / question archive / The money creation process Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves

The money creation process Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves

Economics

The money creation process Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 20% Kevin, a client of First Main Street Bank, deposits $1,500,000 into his checking account at First Main Street Bank. Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans). Assets Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 2016. Hint: If the change is negative, be sure to enter the value as negative number Amount Deposited Change in Excess Reserves Change in Required Reserves (Dollars) (Dollars) (Dollars) 1,500,000 Now, suppose First Main Street Bank loans out all of its new excess reserves to Hilary, who immediately uses the funds to write a check to Edison Edison deposits the funds immediately into his checking account at Second Republic Bank. Then Second Republic Bank lends out all of its new excess reserves to Rajiv, who writes a check to Maria, who deposits the money into her account at Third Fidelity Bank. Third Fidelity lends out all of its new excess reserves to Simone in turn
Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 20%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves Change in Required Reserves (Dollars) (Dollars) (Dollars) 1,500,000 Now, suppose First Main Street Bank loans out all of its new excess reserves to Hilary, who immediately uses the funds to write a check to Edison Edison deposits the funds immediately into his checking account at Second Republic Bank. Then Second Republic Bank lends out all of its new excess reserves to Raji, who writes a check to Marta, who deposits the money into her account at Third Fidelity Bank. Third Fidelity lends out all of its new excess reserves to Simone in turn Filt in the following table to show the effect of this ongoing chain of events at each bank. Enter each answer to the nearest doar Increase in Deposits (Dollars) Increase in Required Reserves (Dollars) Increase in Loans (Dollars) First Main Street Bank Second Republic Bank Third Fidelity Bank Asume this process continues, with each successive loan deposited into a checking account and no banke keeping any excess reserves. Under these amptions, the $1,500,000 injection into the money supply results in an overall increase of in demand deposits

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